You may have a great idea for a startup, but you’re not going to be able to start a business on your own.
Finding co-founders is one of the first challenges a startup must face. But how many do you need? And is it cool to pick your buddies?
We asked these questions and more to Jana Matthews, who is managing director of the ANZ Innovyz START accelerator program and has helped guide numerous startups over the years.
How many co-founders?
A good startup has “three founders with differentiated focus and interests and hopefully skills,” says Matthews.
“It’s not too hard for one or two people to develop some cool thing,” she says. However, she urges startups to “break the cycle of making cool stuff and actually build cool organisations that will market and build cool stuff.”
Matthews says the specialties that need to be covered by the three co-founders are:
- Sales and marketing
“Those are the three legs of the stool if you’re going to be building a company,” she says.
“You have to have financial stability, you need to have sales stability and you need to have a technical product.
“All of those are very important, and I would argue equally important. All those perspectives [should] be heard as you’re trying to develop this thing called a company.”
Matthews says she often gets asked about other specialty areas such as legal, but advises to stick to the above three in the early going.
“You actually need someone who understands the financial stuff. Will you need the legal eventually? Sure, of course, but right now the most important are sales, marketing and making sure you have a product that works.”
How do you choose a co-founder?
“You want someone who is passionate about taking the product to customers,” Matthews says. “Not just passionate about the product, but passionate about getting this out into the world.”
The candidate should be willing to give up any other job they might have and work for the startup on a full-time basis, she adds.
Previous business experience is useful because it means the candidate understands how a company operates, she advises.
Hiring someone you know can be a good thing, assuming they bring in new and different skills to the startup, she says. “I’ve noticed the teams that have really worked well together are the ones who’ve known each other for a while,” she says
She warns, however, that it may depend on the relationship.
“Buddies could be a real positive because they’ve tested each other in the real world and know how to work with each other,” says Matthews.
Relatives can work but difficulties could arise, especially if family money is involved, she says.
“The trickiest one is actually people who are partners,” she says. If they break up, “it has a huge detrimental effect on the company.”
Even if they stay together, problems could arise because the partners likely “will talk about the company all the time,” including off hours, she says.
“A couple can easily leave out other people in the company who should be part of those decisions just because they don’t have to be there when they’re in their bedroom talking about this stuff.”
When is it time to expand?
So you’ve got your three co-founders and are making progress on the business. When is it time to add staff?
“The whole issue of premature scaling brings a lot of companies down,” says Matthews. “Some of the research that was done in the States suggests that 70 or 80 per cent of company failure can be attributed to people who scale before they should have.”
Companies who received an early investment from an angel investor can sometimes be tempted to add staff right away, but in general this should be avoided, she says.
It’s an issue of controlling the budget and limiting expenses until there is a steady stream of money coming into the company, she says. “You try to extend the runway.”
Before adding staff, it’s important to nail down the product market fit, she says. “After have you have a good sense of, ‘Our product is for this market and this is the market we’re going to go after’ ... then it makes sense for you to add people in sales and marketing.
When sales begin to come in, the startup can consider adding more people in finance and other areas, she adds.
To further control expenses, Matthews recommends starting with part-time staff and then ramping up hours as needed.
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